THE SALES TAX THAT COMES BACK TO BITE

March 30, 2010

Avoiding paying sales taxes on some purchases made online or out of state is getting more difficult, according to the Wall Street Journal:

Twenty four states, plus the District of Columbia, are adding a special line on tax return forms that requests a payment for sales taxes on any good bought out of state, including those from online retailers.

This is up from 20 states in 2008.

Other states collect the tax in a variety of ways, some with special forms that taxpayers are supposed to fill out voluntarily.

States are trying to recoup some of the $20 billion or so they lose each year to online sales tax evasion. The gap exists for a quirky reason: States with sales taxes always have a "use tax" on items residents buy from out-of-state vendors. But a 1992 Supreme Court decision affirmed that out-of-state vendors don't have to collect the tax. It's up to taxpayers to track what they owe, but most don't, says the Journal.

Many states warn against leaving the line blank, however, and include a table of "suggested" contributions by income level:

In New York, the suggested contribution for a return showing $200,000 of adjusted gross income is $78.

Items costing more than $1,000 are supposed to be handled separately.

Honest souls who want to figure out what they owe will find it tough, because of a patchwork of current practices, says the Journal. Scott Peterson, executive director of the Streamlined Sales Tax initiative, used credit card statements to work out what he owed for 2009: "I made a spreadsheet," he says, "so figuring it out only took about four hours."